Hindenburg Shorts Block Inc.
Hindenburg Research, a forensic financial research firm, has taken a short position in payments company Block Inc. and alleged that the firm has overstated its user numbers and understated its customer acquisition costs. The move is seen as a challenge to Jack Dorsey, Twitter co-founder and Block’s largest shareholder, who co-founded the company in 2009 with the goal of shaking up the credit card industry. The company’s shares fell by 15% to $61.67 in response to the report, after earlier falling by 22%.
Hindenburg’s report claimed that former Block employees estimated that 40% to 75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual. It also alleged that the company “obfuscates” the number of individuals on the Cash App platform by reporting “misleading transacting active metrics filled with fake and duplicate accounts”.
Block’s management team has vowed to fight back, saying it would explore legal action against the short seller for its “factually inaccurate and misleading report” that was “designed to deceive and confuse investors”. The company added that it would work with the US Securities and Exchange Commission. Reuters was unable to verify the claims raised in the report.
Block has been hit by concerns over the strength of consumer spending in the face of elevated levels of inflation and expectations of an economic downturn, triggering a more than 60% slump in the company’s shares last year. Hindenburg’s report comes at a time when the outlook for the payments industry has been clouded by these worries.
Hindenburg invests its own capital and takes short positions against companies. After finding potential wrongdoings, the company usually publishes a report explaining the case and bets against the target company, hoping to make a profit. Short sellers typically sell borrowed securities and aim to buy these back at a lower price. The session’s 20% price move following Hindenburg’s report means short sellers have made over $400 million in paper profit, according to data from financial analytics firm Ortex.
